evanoff et al (eds.) - international financial instability; global banking and national regulation (2007)

International Financial Instability Global Banking and National Regulation World Scientific Studies in International Economics (ISSN: 1793-3641) Series Editor Robert M Stern, University of Michigan, USA Editorial Board Vinod K Aggarwal, University of California-Berkeley, USA Alan Deardorff, University of Michigan, USA Paul DeGrauwe, Katholieke Universiteit Leuven, Belgium Barry Eichengreen, University of California-Berkeley, USA Mitsuhiro Fukao, Keio University, Tokyo, Japan Robert L Howse, University of Michigan, USA Keith E Maskus, University of Colorado, USA Arvind Panagariya, Columbia University, USA Published Vol Cross-Border Banking: Regulatory Challenges edited by Gerard Caprio, Jr (Williams College, USA), Douglas D Evanoff (Federal Reserve Bank of Chicago, USA) & George G Kaufman (Loyola University Chicago, USA) Vol International Financial Instability: Global Banking and National Regulation edited by Douglas E Evanoff (Federal Reserve Bank of Chicago, USA) George G Kaufman (Loyola University Chicago, USA) & John Raymond LaBrosse (Int’l Assoc of Deposit Insurers, Switzerland) Forthcoming Risk Management and Value: Valuation and asset Pricing edited by Mondher Bellalah (University of Cergy-Pontoise, France) Globalization and International Trade Policies by Robert M Stern (University of Michigan, USA) Emerging Markets by Ralph D Christy (Cornell University, USA) Institutions and Gender Empowerment in the Global Economy: An Overview of Issues (Part I & Part II) by Kartik C Roy (University of Queensland, Australia) Cal Clark (Auburn University, USA) & Hans C Blomqvist (Swedish School of Economics and Business Adminstration, Finland) The Rules of Globalization (Casebook) by Rawi Abdelal (Harvard Business School, USA) YiShen - Int'l Financial Instability.pmd 11/22/2007, 6:26 PM Published by World Scientific Publishing Co Pte Ltd Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library World Scientific Studies in International Economics — Vol INTERNATIONAL FINANCIAL INSTABILITY Global Banking and National Regulation Copyright © 2007 by World Scientific Publishing Co Pte Ltd All rights reserved This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA In this case permission to photocopy is not required from the publisher ISBN-13 978-981-270-763-5 ISBN-10 981-270-763-8 Typeset by Stallion Press Email: enquiries@stallionpress.com Printed in Singapore YiShen - Int'l Financial Instability.pmd 11/22/2007, 6:26 PM b517_FM.qxd 8/30/2007 2:41 PM Page v FA Acknowledgements Both the conference and this resulting volume represent a joint effort of the Federal Reserve Bank of Chicago and the International Association of Deposit Insurers Numerous people at both organizations aided in their preparation and successful execution The three editors served as the principal organizers of the conference program and are indebted to the assistance of many people who contributed at various stages of the endeavor At the risk of omitting some, they wish to thank John Dixon, Ella Dukes, Jennie Krzystof, Hala Leddy, Loretta Novak, Elizabeth Taylor, Julia Baker and Wempy (Ping) Homeric Special mention must be accorded Regina Langston and Pam Suarez, who shared primary responsibility for administrative duties, and Kathryn Moran, who compiled the information for both the program and this conference volume v b517_FM.qxd 8/30/2007 2:41 PM Page vi FA This page intentionally left blank b517_FM.qxd 8/30/2007 2:41 PM Page vii FA Preface Cross-border banking in the form of international branches or subsidiaries is increasing rapidly, but prudential regulation of banking — supervision, deposit insurance, lender of last resort facilities, insolvency resolution — remains primarily national This mismatch raises concerns about the ability of regulators to stem banking crises and financial instability both from being ignited and from spreading rapidly across national boundaries The papers published in this volume describe the existing structure of both cross-border banking and prudential regulation, identify the vulnerabilities in that structure, analyze the implications for the safety, soundness and efficiency of the international banking system, and make recommendations on how to improve the existing structure to enhance the safety and soundness of the banking system without reducing efficiency Should there be greater emphasis on international cooperation, harmonization of regulations and supranational regulatory agencies, or is the current system, with minor country-specific regulatory adjustments, sufficient to avoid financial crises? These issues were explored at a conference cosponsored by the Federal Reserve Bank of Chicago and the International Association of Deposit Insurers at the Federal Reserve Bank on October 5–6, 2006 The conference was the ninth in a series of annual international banking conferences sponsored by the Federal Reserve Bank of Chicago that focus on important current issues in global economics, finance, and banking Keynote speakers, paper presenters and discussants are internationally recognized experts in their areas Speakers and audience members combined represented a wide array of countries, philosophies, experiences and affiliations, including bankers, bank regulators, and academics In total, more than 40 countries were represented, reinforcing the term “international” in the title of the conference series The papers in this volume, as well as the comments of the discussants of the papers, are intended to bring the ideas that were discussed at the conference to the attention of a larger and more diverse audience In the vii b517_FM.qxd 8/30/2007 2:41 PM Page viii FA viii Preface process, this may contribute both to increasing attention to some of the problems identified in the papers and to searching for solutions Thus, we hope this volume will contribute to enhancing global financial stability Douglas D Evanoff Federal Reserve Bank of Chicago George G Kaufman Loyola University Chicago and Federal Reserve Bank of Chicago John Raymond LaBrosse International Association of Deposit Insurers b517_FM.qxd 8/30/2007 2:41 PM Page ix FA Contents Acknowledgements v Preface vii I Special Addresses Cross-Border Banking Regulation — A Way Forward: The European Case Stefan Ingves Remarks before the Conference on International Financial Instability Sheila C Bair 13 Benign Financial Conditions, Asset Management, and Political Risks: Trying to Make Sense of Our Times Raghuram G Rajan 19 International Financial Instability: Cross-Border Banking and National Regulation Chicago — Dinner Remarks Jean Pierre Sabourin 29 II Landscape of International Banking and Financial Crises 37 Current State of Cross-Border Banking Dirk Schoenmaker and Christiaan van Laecke 39 Actual and Near-Miss Cross-Border Crises Carl-Johan Lindgren 65 A Review of Financial Stability Reports Sander Oosterloo, Jakob de Haan, and Richard Jong-A-Pin 77 Discussion of Landscape of International Banking and Financial Crises Luc Laeven 97 ix b517_Chapter-33.qxd 7/19/2007 4:48 PM Page 465 FA Some Private-Sector Thoughts 465 occasions, including my remarks at the Chicago Fed conference in May 1999, the Financial Services Authority (FSA) and US banking authorities both have to supervise Barclays and Citigroup as large complex banking organizations in their respective jurisdictions.2 While the private sector accepts the safety and soundness responsibility of the host country regulator, we believe host country regulators could achieve much greater efficiency in the process were they to team up or partner with home country regulators in carrying out their responsibilities The Basel II process does not exacerbate the situation regarding cross-border branches — at least not among the Group of Twenty (G20) countries — because they are subject to home country — not host country — Basel requirements But in the US, branches of nondomestic banks are not home free Under the landmark Gramm-Leach-Bliley Act, the Federal Reserve looks at a bank’s global capital in making a determination whether to grant it financial holding company status — and thus become eligible to conduct a broader range of securities, insurance and merchant banking activities To the Fed’s credit, it generally uses homecountry computations since it would be an extreme step to require banks to recalculate separate Basel computations on a global basis in accordance with host country standards Accordingly, there is a big difference between a host country’s review of an international bank’s capital in accordance with its home country capital standards and the concentrated supervisory attention that an international bank’s branches and other US operations actually experience on a continuing basis under existing US host-country examination and supervision of an internationally headquartered institution Cross-Border Subsidiaries Where Basel II is having an impact on home/host relations applies more in connection with subsidiaries The traditional thinking regarding subsidiaries was that the host country had pretty free rein with a separately capitalized entity incorporated in the host jurisdiction Even the European Union’s (EU) Second Banking Directive, whose “passport” system permits Lawrence Uhlick, 1999, “Meeting the Challenges of Supervising Banking Organizations’ Cross-Border Activities”, Proceedings of a Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago, May b517_Chapter-33.qxd 7/19/2007 4:48 PM Page 466 FA 466 L R Uhlick European-wide branches to operate subject only to home country supervision, took a different approach with regard to bank subsidiaries in Europe In many respects, the subsidiary is expected to fully conform to all regulatory and supervisory requirements similar to domestically headquartered institutions in the same jurisdiction This was certainly true under Basel I The expectations of the private sector regarding Basel II were much higher with regard to the consistent application of the Basel framework not only on a consolidated basis but as applied to various legal entities around the world For example, it was anticipated that validation of sophisticated risk models used under the advanced internal ratings based methodology could essentially be performed by home-country regulators and accepted by host-country regulators for various subsidiaries Duplication of this process seems highly unnecessary, at least to private sector participants This is especially the case with respect to the treatment of intermediate holding companies established to rationalize the structure of an international bank’s operations in a host country Subjecting these entities to host country Basel II requirements, as is contemplated in the United States, is both unjustified and unnecessary However, with regard to other aspects of the Basel II regime the situation is, in fact, a lot more complex For example, it is worth considering whether validation regarding some retail portfolios should reflect host country conditions and might more appropriately be conducted by host country authorities and be accepted by home country authorities Similar considerations might apply to commercial real estate portfolios However, it would appear that for wholesale corporate portfolios validation by home country consolidated regulators of the model would be highly appropriate And there is strong sentiment that risk regarding transnational corporate borrowers should not be treated differently in the home and host country jurisdictions Likewise, validation of the treatment of securitization portfolios under Basel II would appear to be a matter more appropriately addressed by home country supervisory authorities This problem of different treatment of the same corporate borrower is exacerbated by the differences in the definition of default, as for example under the European Commission’s Capital Requirements Directive (CRD) and the US Basel II notice of proposed rulemaking (NPR) Private banks are concerned that differing definitions of default would necessitate maintenance of separate home/host databases to facilitate home/host computations, which would entail considerable additional costs and burdens b517_Chapter-33.qxd 7/19/2007 4:48 PM Page 467 FA Some Private-Sector Thoughts 467 Concerns regarding needless duplication of supervisory effort also have arisen with regard to the Basel II Pillar review process, where, one would expect, host countries to a significant extent should be able to utilize and rely upon home country efforts in order to reduce the duplication and burden on domestic subsidiaries I want to emphasize that the “college of regulators” approach developed by the Basel Committee’s Accord Implementation Group (AIG) is encouraging practical solutions to many of these problems so as to minimize burdens resulting from home/host implementation of Basel II advanced methodologies And I should also point out that the private sector gives high marks to AIG Chairman Nick Le Pan for a highly commendable effort to explore these concerns and seek consensus solutions by home/host country supervisors to minimize unnecessary burdens In addition, the Committee of European Banking Supervisors has proposed a system of solving these issues among home/host regulators in Europe with respect to parents and subsidiaries operating there It will need to be left to future meetings to see whether these collective efforts are successful in ameliorating the burdens that otherwise would be incurred in implementing Basel II on a global basis Umbrella Supervision There are also home/host issues in relation to umbrella supervision NonUS banks that have branches or subsidiaries in the US are subject to Federal Reserve holding company — or umbrella — supervision despite home country umbrella supervision of their global operations These arrangements have been in place with regard to branches since the International Banking Act of 1978, and previously with regard to ownership of bank subsidiaries, and have generally worked reasonably well However, it is interesting to contrast the arrangements under the EU conglomerates directive, whereby financial institutions headquartered in the US and other non-EU countries are not subject to European-wide umbrella supervision if there is “equivalent” umbrella supervision by their home country supervisors Under this arrangement, the EU determined that the SEC provides “equivalent” umbrella supervision to US securities firms under the Securities and Exchange Commission’s (SEC) Consolidated Supervised Entity (CSE) regulation It should be recognized that prior to this SEC regulation, the major securities firms in the US and b517_Chapter-33.qxd 7/19/2007 4:48 PM Page 468 FA 468 L R Uhlick their affiliates were not subject to holding company or umbrella supervision by the SEC In fact, the regulation depends on a securities firm group volunteering to be subject to SEC umbrella supervision in order to be eligible for the favorable risk-base Alternative Net Capital rule for the registered broker-dealer International banks have questioned the appropriateness of being required to submit to a third layer of umbrella supervision of their global operations to be eligible for the favorable SEC net capital rule rather than qualifying on the basis of the equivalent umbrella supervision provided by their home country regulators In effect, the favorable effort by the EU to avoid duplicating equivalent umbrella supervision by third countries is not being followed by the SEC with respect to international banking groups that are already subject to extensive umbrella supervision that meets international standards International banks continue to believe that they should be eligible for the favorable risk-based alternative net capital rule because they are already subject to equivalent home country umbrella supervision It should be noted that American bank holding companies that are regulated by the Federal Reserve Board would also be subject to duplication of umbrella supervision under the SEC rule However, there are reports that Citigroup is applying to the SEC (and conferring with the Federal Reserve) to be eligible for the favorable risk-based capital treatment of its securities affiliate and that the issue of duplicative umbrella supervision that is mandated by the SEC’s CSE regulation could be revised in the future In this context, internationally headquartered banks would like to receive comparable treatment since they too receive extensive umbrella supervision by both the Federal Reserve and their home country regulators Such a favorable change would be consistent with the treatment of American securities firms under the EU Conglomerates Directive Conclusion Tensions between home/host regulatory and supervisory requirements and expectations are an inherent feature of the modern international banking system, especially in view of the broad territorial reach and far-ranging operational complexity and interdependence that characterize banks’ b517_Chapter-33.qxd 7/19/2007 4:48 PM Page 469 FA Some Private-Sector Thoughts 469 cross-border activities Managing this tension and determining the appropriate degree of home/host division of supervisory responsibility remain the principal challenges to achieving a properly balanced and efficient international supervisory regime And while I recognize the paramount concern of international regulators will be to avoid cross-border financial disruptions, there is nevertheless an understandable interest on the part of private-sector institutions to minimize unnecessary burdens and to have as much consistency as possible in home/host supervision of their global operations in order to avoid any undue negative impact on financial results and shareholder value b517_Chapter-33.qxd 7/19/2007 4:48 PM Page 470 FA This page intentionally left blank b517_Agenda.qxd 7/19/2007 4:49 PM Page 471 FA Conference Agenda Thursday, October 9:00 am Registration 9:40 am Welcoming Remarks Michael H Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago J P Sabourin, Chair, Executive Council, International Association of Deposit Insurers 10:00 am Session I: Landscape of International Banking and Financial Crises Moderator: Douglas D Evanoff, Federal Reserve Bank of Chicago Current State of Cross-Border Banking Dirk Schoenmaker, Ministry of Finance, The Netherlands Actual and Near-Miss Cross-Border Crises Carl-Johan Lindgren, Economic Consultant Review of Country Financial Stability Reports Sander Oosterloo, Ministry of Finance, The Netherlands Discussant: Luc Laeven, International Monetary Fund 12:00 pm Luncheon and Keynote Address Moderator: Gordon Werkema, First Vice President and Chief Operating Officer, Federal Reserve Bank of Chicago Speaker: Stefan Ingves, Governor, Bank of Sweden (Riksbank) 471 b517_Agenda.qxd 7/19/2007 4:49 PM Page 472 FA 472 Conference Agenda 2:00 pm Session II: Causes and Conditions for Cross-Border Instability Transmission and Threats to Stability Moderator: Craig H Furfine, Federal Reserve Bank of Chicago Contagion Links Bent Vale, Bank of Norway (Norges Bank) Cross-Border Currency Crises Jon Danielsson, London School of Economics, and Gabriele Galati, Bank for International Settlements Hedge Funds and Other Nonbanks Glenn Yago and James R Barth, Milken Institute Discussant: Garry J Schinasi, International Monetary Fund 3:45 pm Break 4:00 pm Session III: Prudential Supervision Moderator: Dalvinder Singh, Journal of Banking Regulation and Oxford Brookes University Home Country/Cross-Border Externalities Robert Eisenbeis, Federal Reserve Bank of Atlanta Home–Host Country Conflicts Richard J Herring, University of Pennsylvania Nonbank Supervision Paul Wright, Financial Services Authority, United Kingdom Discussant: Eric Rosengren, Federal Reserve Bank of Boston 6:00 pm Reception 6:45 pm Dinner and Keynote Address Moderator: Michael H Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago Speaker: Sheila C Bair, Chairman, Federal Deposit Insurance Corporation b517_Agenda.qxd 7/19/2007 4:49 PM Page 473 FA Conference Agenda 473 Friday, October 7:30 am Continental Breakfast 8:15 am Session IV: Government Safety Net Moderator: David K Walker, Canada Deposit Insurance Corporation Lender of Last Resort across Borders Vitor Gaspar, Banco de Portugal Deposit Insurance across Borders Michael H Krimminger, Federal Deposit Insurance Corporation Intercountry Conflicts Andrew P Powell, Inter-American Development Bank, and Giovanni Majnoni, World Bank Discussant: Thorsten Beck, World Bank 10:00 am Break 10:15 am Session V: Insolvency Resolution Moderator: Ray LaBrosse, International Association of Deposit Insurers Cross-Border Resolution Conflicts Rosa Maria Lastra, Queen Mary, University of London Bridge Banks and Too Big to Fail/Systemic Risk Exemption David G Mayes, Bank of Finland Prompt Corrective Action/Structured Early Intervention and Resolution María J Nieto, Banco de España, and Larry Wall, Federal Reserve Bank of Atlanta Discussant: Peter G Brierley, Bank of England b517_Agenda.qxd 7/19/2007 4:49 PM Page 474 FA 474 Conference Agenda 12:15 pm Luncheon and Keynote Address Moderator: Charles L Evans, Federal Reserve Bank of Chicago Speaker: Raghuram G Rajan, International Monetary Fund 2:15 pm Session VI: Cross-Border Crisis Prevention: Public and Private Strategies Moderator: Richard J Rosen, Federal Reserve Bank of Chicago Multinational Cooperation and Lead Supervisor Arnoud W A Boot, University of Amsterdam Multinational/Transnational Organizations David S Hoelscher and David Parker, International Monetary Fund Private Organizations David Mengle, International Swap and Derivatives Association Discussant: Gerard Caprio, Jr., Williams College 4:00 pm Break 4:15 pm Session VII: Where to from Here: Policy Panel Moderator: George G Kaufman, Loyola University Chicago and Federal Reserve Bank of Chicago Mutsuo Hatano, Deposit Insurance Corporation of Japan Andrey G Melnikov, Deposit Insurance Agency (Russian Federation) Arthur J Murton, Federal Deposit Insurance Corporation Guy Saint-Pierre, Canada Deposit Insurance Corporation Lawrence R Uhlick, Institute for International Bankers 6:00 pm Reception b517_Agenda.qxd 7/19/2007 4:49 PM Page 475 FA Conference Agenda 6:45 pm 475 Dinner and Keynote Address Moderator: Ray LaBrosse, International Association of Deposit Insurers Speaker: J P Sabourin, Chair, Executive Council, International Association of Deposit Insurers b517_Agenda.qxd 7/19/2007 4:49 PM Page 476 FA This page intentionally left blank b517_Index.qxd 8/30/2007 2:41 PM Page 477 FA Index Accord Implementation Group 207, 413, 467 advanced approach 14, 15 adverse selection 302 agency problem 189, 191, 192, 193, 266, 300 alpha 22–27 American Development Bank 279, 473 arbitrage 23, 24, 147, 304, 317, 397, 413, 420 Asian crisis 13, 100, 125–127, 129, 170 Asian Development Bank 31 asymmetric information 115, 246, 300, 392 Basel Committee 15, 101, 201–203, 205–208, 210, 216, 217, 260, 264, 279, 315, 318, 321–324, 356, 361, 363, 369, 412, 413, 463, 467 Basel II 14, 15, 102, 205, 207, 215, 235, 236, 293, 294, 411, 412, 430, 464–467 beta 22, 24, 26, 27, 28 branch 5, 109–111, 113, 116, 118, 119, 121, 190, 191, 194, 208, 210, 212, 214, 216, 229, 230, 231, 261, 263, 265, 267, 270, 273, 274, 280, 281, 284, 288, 306, 316, 382, 412, 415, 417, 420, 450, 451 capital adequacy 86, 90, 113, 114, 206, 207, 222, 263, 342, 360, 365, 367, 412 Central Bank 3, 5, 7, 8, 10, 24, 26, 34, 36, 57, 68, 70, 77–86, 90–92, 94, 95, 101, 102, 109, 127, 171, 174, 181–186, 190, 195, 202, 215, 244, 245, 247–251, 253, 260, 262, 268, 273, 276, 301, 303, 305, 311, 321, 322, 326, 327, 343, 359, 374, 375, 387–391, 394–396, 399, 401, 402, 403, 414, 423, 439, 459 collateral 176, 185, 245, 247, 249, 250, 265, 270, 274, 301, 302, 343, 348, 376, 378, 380, 382, 390, 394, 426, 428, 429, 430, 433 competition 19, 22, 23, 101, 103, 177, 234, 251, 274, 315, 327, 375, 387, 398, 440, 465 Bagehot x, 241, 243–250, 254, 390, 392 bailout 183, 277, 397 banking crisis 17, 53, 58, 65, 66, 68, 71–73, 77, 81–84, 94, 100, 112, 182, 236, 273, 326, 384 bankruptcy 101, 185, 186, 188, 190, 192–194, 196, 204, 211, 233, 235, 258, 275, 311, 313, 316, 317, 324, 325, 328, 331, 344, 348, 365–367, 377, 388, 426, 430, 432, 451, 455 bankruptcy code 426 Basel Accord Implementation Group 413 477 b517_Index.qxd 8/30/2007 2:41 PM Page 478 FA 478 Index concentration 85, 103, 145, 146, 150, 207, 209, 234, 399, 431 conflict of interest 303, 305, 343, 350 consolidated supervisor 260 contagion x, 4, 67, 68, 71–75, 85, 92, 100, 103, 109, 110–113, 116, 122, 123, 125–130, 134, 135, 172, 183, 184, 195, 236, 267, 313, 332, 379, 392, 393, 472 corrective action xi, 15, 113, 188, 217, 263, 266, 270, 271, 272, 303, 314, 331, 339, 347, 348, 355, 364, 369, 373, 413, 454, 473 counterparty risk management 176, 224, 423, 424 country risk 290 crisis resolution 109, 262, 269, 273, 277, 278, 388, 408, 417 cross-border contagion x, 67, 71, 72, 74, 109, 112, 195, 267 deposit insurance vii, xi, 13, 16, 17, 29, 30–36, 59, 66, 68, 73, 75, 101, 103, 187, 189, 190, 193, 194, 196, 202, 203, 211, 215, 235, 236, 251, 257–259, 267–270, 272–274, 276, 279, 288, 290, 295, 296, 299, 300–306, 311, 314, 317, 324, 332, 342, 350, 351, 355, 356–359, 361, 364, 365, 367, 369, 374, 375, 391, 396, 414, 415, 440, 445–447, 449, 450, 453, 455, 457, 459, 472–474 efficiency vii, 33, 58, 104, 177, 203, 204, 208, 230, 242, 296, 327, 388, 396, 397, 399, 400, 402, 408, 409, 416, 429, 430, 434, 437, 440, 465 efficient markets 127, 253 enterprise risk management 34 EU deposit insurance directive (EU directive) 57, 228, 267, 271, 273, 342, 378, 382–384, 390 European Company Statute 261, 325 European Forum of Deposit Insurers 16, 31, 455 Federal Deposit Insurance Corporation 13, 32, 187, 211, 257, 303, 314, 317, 332, 355, 364, 375, 450, 453, 472–474 Federal Reserve Bank of Chicago v, vii, viii, 29, 39, 167, 266, 355, 376, 377, 407, 430, 453, 465, 471, 472, 474 financial integration 60, 103, 241, 242, 253, 254 Financial Services Authority 8, 221, 222, 224, 362, 365, 389, 465, 472 financial soundness indicators 85–91, 101 financial stability reports ix, 77, 181, 471 foreign direct investment 21, 41 foreign ownership 54, 103, 312 governance xi, 28, 31, 33, 34, 225, 319, 360, 423–427, 437, 440 governmental intervention 195, 265 hedge funds x, 22, 24–27, 126, 139, 140–143, 145–148, 150–153, 155–160, 167–170, 173–177, 224, 225, 228, 424, 426, 427, 434–436, 441, 472 Herstatt 171, 189, 190, 193, 195, 201 home supervisor 8, 56, 59, 204, 212, 226, 231, 235, 237, 260, 264–266, 296, 305, 412, 417 host supervision 415, 469 b517_Index.qxd 8/30/2007 2:41 PM Page 479 FA Index incentive conflict 191 insolvency laws 259, 261, 270, 312, 315, 317, 320, 460 Internal Ratings Based Approach 207, 412 International Association of Deposit Insurers v, vii, viii, 16, 29, 74, 407, 447, 450, 455, 471, 473, 475 investment restraint 21 LDC debt crises 70, 71 lender-of-last-resort (LOLR) 387–397, 399–405, 439, 440 leverage ratio 15 liquidity risk 92, 207 Long-Term Capital Management 27, 69, 71, 127, 132, 139, 140, 159, 168, 170, 176, 177, 183, 185, 186 Loss sharing agreements 216 market discipline 102, 140, 164, 169, 170–172, 174, 176, 177, 207, 217, 300–302, 375, 412, 426, 427, 440 market efficiency 242 macroeconomic stability 97, 252 memorandum of understanding (MoU) 7, 56, 57, 192, 235, 253, 264, 303, 304, 318, 326, 390, 396, 397, 399, 400, 401, 414, 417, 439, 447 models of contagion 126, 127 moral hazard 16, 168, 169, 173, 176, 183, 195, 244, 258, 259, 273, 276, 278, 299, 300, 306, 315, 334–336, 339, 340, 369, 374, 375, 377, 397 479 operational risk 207 payments system 185, 195, 257 private equity 22, 23, 27 prompt corrective action xi, 15, 188, 217, 266, 270–272, 303, 314, 339, 347, 348, 355, 373, 454, 473 prudential supervision x, 13, 56, 82, 179, 192, 225, 229, 230, 356, 357, 361, 369, 389, 390, 397, 472 regulatory compliance 427 resolution process 123, 184, 191, 209, 211, 265, 267, 274, 278, 328, 339, 349, 380, 414 Riegle-Neal Act 39, 53 shifting risk 187 savings glut 21 Special Data Dissemination Standards 101 subsidiary structure 60, 109, 110, 113, 114, 115, 118, 119, 121, 268, 281, 398 supervisory colleges 8, 56, 61, 207, 235 systemic crisis 72, 358, 379 systemic risk xi, 24, 140, 160, 167, 168, 170, 171, 173–175, 177, 181, 182, 187, 195, 196, 211, 213, 223, 224, 246, 252, 331, 332, 356, 374, 376, 387, 388, 393, 394, 398, 456, 473 Transnationality Index (TNI) 40 transparency 77, 78, 81, 92–94, 172–177, 187, 207, 254, 300, 319, 365, 375, 412, 449 .. .International Financial Instability Global Banking and National Regulation World Scientific Studies in International Economics (ISSN: 179 3-3 641) Series Editor Robert... II Landscape of International Banking and Financial Crises 37 Current State of Cross-Border Banking Dirk Schoenmaker and Christiaan van Laecke 39 Actual and Near-Miss Cross-Border Crises Carl-Johan... Financial Conditions, Asset Management, and Political Risks: Trying to Make Sense of Our Times Raghuram G Rajan 19 International Financial Instability: Cross-Border Banking and National Regulation